In 2020, South African grocery chain Shoprite announced it would exit the Nigerian market. The following year, Walmart-owned Massmart also revealed plans to sell its five Game outlets in the country. These moves, along with the exit of other South African stores like Mr Price and Woolworths, led many to question the viability of formal retail in Africa’s most populous nation. While the departure of some of these retailers were due to a change in head office strategy, Nigeria-specific challenges – including economic downturns, foreign currency shortages, high rentals and port delays – also contributed.
As the abovementioned companies ran out of road, locally owned chain Marketsquare grew its footprint from a single store in 2015 to 21 today. Founded by Nigerian entrepreneur Ebele Enunwa, its supermarkets and convenience stores sell a variety of food and personal- and home-care products.
South African-based private equity firm Sango Capital was one of the first investors in Sundry Markets – Marketsquare’s parent company – and recently announced a second investment in the business. Jaco Maritz spoke to Charles Mwebeiha, managing director of Sango Capital, about Nigeria’s retail environment and why the firm decided to back Marketsquare. We share some highlights from the conversation below.
Few Nigerian retailers have reached meaningful scale
Modern, air-conditioned grocery stores account for no more than 10% of Nigerian retail sales. The vast majority of goods are sold through open-air markets, small kiosks, table-top sellers and street hawkers.
Few modern chains have created a meaningful footprint to make a dent in the prevalence of informal retail. Despite being in Nigeria for 15 years, Shoprite had only 25 stores when it announced its exit. Yet, in seven years, Marketsquare has grown to 21 outlets, with plans to increase to at least 50 locations by 2025. “The idea that you’d have a retailer trading out of 50, maybe more stores is somewhat revolutionary in the sector,” says Mwebeiha.
Understanding the market is key to Marketsquare’s growth
Mwebeiha attributes this growth to the fact that the company is run by Nigerians who understand the nuances of the local market. “The reality is that retail is a very local business. You need to understand your customers … you need to understand the supply chain constraints and how to overcome them [and] you need to understand the appropriate business and operational structures.”
He says foreign traders often don’t have a clear understanding of the local business environment and the customer they are trying to serve. “It’s a challenging environment to operate in and [Marketsquare] has been able to navigate those challenges reasonably successfully because they are [Nigerian].
Opportunities in smaller cities
Marketsquare founder Ebele Enunwa opened the first Marketsquare store, not in Lagos or Abuja, but in the much smaller city of Yenagoa in Bayelsa State.
Mwebeiha believes it made sense as many people are employed in the oil sector or as civil servants with disposable incomes; yet, there was only one “proper” supermarket in Yenagoa at the time. He adds that the consumption patterns of those living in Yenagoa aren’t any different to those living in the economic hubs of Lagos and Abuja.
“Ordinary Nigerians want to shop in a clean [and] standardised environment. They want to buy goods that are packaged well [and] sold at a reasonable price … These people are found everywhere in Nigeria; they’re not only found in Abuja or in Lagos or in Ibadan, or in any of the other tier-one cities that most foreign operators will initially target.”
While Marketsquare has since launched in Lagos and Abuja, most of its stores are in the southeastern region.
Informal retail the real competition
Marketsquare’s focus is on grabbing market share from the informal traders as opposed to fighting for customers with other modern grocery chains such as Spar and Everyday. It is about convincing those who shop at informal stores that they can find the same products in a clean and air-conditioned setting with a high level of service, at a reasonable price point considering the superior shopping experience.
Challenges facing retailers in Nigeria
Mwebeiha reveals the number one challenge for modern retailers is the availability of good quality trading space. There aren’t enough well-capitalised, professional real estate developers building adequate retail space at the speed to match Marketsquare’s growth ambitions.
A second hurdle is supply chain constraints, particularly in terms of imports. Nigeria relies heavily on imports for its finished product and raw materials needs. However, bringing goods into the country is associated with many struggles, including a foreign exchange shortage, a weakening local currency, bureaucracy at the ports, and import restrictions on certain products.
Marketsquare has navigated these challenges by stocking as many locally manufactured goods as possible. It buys imported merchandise from well-capitalised, established distributors that know how to address common problems rather than importing products directly.
Marketsquare founder Ebele Enunwa is one of the 25 business people featured in HOW WE MADE IT IN AFRICA: THE BOOK, which tells the stories of entrepreneurs who’ve built thriving ventures. The book is available as a hard copy or e-book from book.howwemadeitinafrica.com. Alternatively, you can subscribe to How we made it in Africa’s Monthly or Annual packages and receive the e-book free of charge.